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  • Katherine Torres, CEO

Loan Forgiveness Application: Are you ready for it?

On May 15, the Small Business Administration (SBA) released its Paycheck Protection Program (PPP) Loan Forgiveness Application along with in-depth instructions on how to complete it. This application inform how borrowers can apply for forgiveness of their PPP loans at the conclusion of the eight week covered period, which begins with the disbursement of their loan, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).


The application consist of 11 pages that summarizes eligible and non-eligible payroll costs, indicates the documents that must be submitted by borrowers with the PPP loan forgiveness application, and provides step-by-step directions for completing the forms. The application must be completed by the borrower and submitted to their bank or lender whom they received their PPP loan from.


In particular small-business owners has been attracted to the forgiveness component of PPP with the objective to take out loans in droves, as the program promised forgiveness of amounts loaned so long as the small business used the funds for specific expenses. This means the loan can be 100% forgiven only if the borrowers meet certain criteria, so the loans can be essentially converted into tax-free grants.


The specific expenses for which PPP funds can be used are as follows are:

1. Payroll. Everything involved with it.

2. Mortgage interest. For mortgages signed before February 15, 2020.

3. Rent. For lease agreements in effect before February 15, 2020.

4. Utilities. As long as service began before February 15, 2020.


All expenses that fall under those categories are eligible for forgiveness. Let’s summarize the forgiveness rules of the PPP:


1. Eight weeks of coverage

Eligible expenses for forgiveness are those that are incurred over eight weeks, starting from the day the first payment was made by your lender. Depending on your payroll schedule, you may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible. The new guidance allows you to choose the eight-week period that begins on your first payroll date following the loan disbursement.


2. The 75/25 rule

At least 75% of your loan must be used for payroll costs, but can also contain up to 25% of other approved expenses under the law such as rent, mortgage interest and utilities. Payments to independent contractors cannot be included in the payroll costs.

According to the forgiveness application utilities definition Includes electricity, Internet, water, Transportation and Telephone for which service began before February 15, 2020. Rent includes leases of personal and real property. The application also makes it clear that personal property items that are leased by a business will be includable in the bucket of non-payroll costs that may be forgiven. Likewise, a business “mortgage interest payment” includes loans for real property and personal property, so interest paid on loans for equipment, autos and other personal property items are includable and can be forgiven.


3. Staffing requirements

You must maintain the number of employees on your payroll. Small business will be penalizes if they don’t bring back the same number of workers they had before the pandemic.

Employees who were laid off or put on furlough may not wish to be rehired onto payroll. If the employee does not accept your re-employment offer, you may be allowed to not include this employee when calculating forgiveness. To qualify for this you must present evidence and documentation for it. It is important to know that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.


4. Pay requirements

It is necessary to maintain at least 75% of total salary. This requirement will be individually estimated for every employee that did not receive more than $100,000 in annualized pay in 2019.

If the employee’s pay over the 8 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced according to their current pay and 75% of the original pay.


5. Rehiring grace period

You can rehire any staff that were laid off or placed on furlough and reinstate any pay that was decreased by quite 25% to satisfy the wants for forgiveness.


6. $2M

You must certify whether or not the total loan amount of your business, and/or your affiliated businesses, is $2M or above. The SBA has previously notified small businesses that loans of $2M or above will likely be audited, and the application shows how they will be flagging those companies.


Documentation

The application outlines what documentation are going to be required with the forgiveness request. Broadly speaking, the documents required for this are the following, taking into account that your lender may have additional requirements:


  • Documents verifying the number of full-time equivalent employees on payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements:

  1. Payroll reports from your payroll provider

  2. Payroll tax filings (Form 941)

  3. Income, payroll, and unemployment insurance filings from your state

  4. Documents verifying any retirement and health insurance contributions

  • Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

Small-businesses owners will submit their forgiveness application and their supporting documentation to their bank, which will have 60 days to approve or reject the request. Attention to detail and a correctly completed forgiveness application are going to be key to making sure the utmost amount forgivable. Understanding the application now will increase your chances of receiving maximum PPP loan forgiveness.


It will be critical to have good recordkeeping and bookkeeping for getting your loan forgiven because you’ll need to keep track of eligible expenses and their accompanying documentation over the eight weeks, this can include documents in digital format depending on your lender request.


If you do not have a reliable accounting and bookkeeping solution in place, contact us today and start taking care of your financial future.

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